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A New Social Calculus

What impact does your company have on the environment? Check your annual report.

If you want to see how well a company is managing its own assets, you just look at the financial statements. So why shouldn't an annual report also account for how the business is managing society's collective assets — our air, water, and other natural resources?

Dutch entrepreneur Eckart Wintzen actually tested the idea at BSO/Origin, an infotech company he founded and built to 6,000 employees in 21 countries. In the early 1990s, Origin's annual reports included detailed balance sheets estimating the monetary value of its environmental burden — its fuel consumption, atmospheric emissions, and waste production. The practice ended, however, when the company was bought in 1996 by Philips, the European electronics giant. Count it as an idea way ahead of its time.

Wintzen went on to cofound a "green" venture-capital firm, Ex'tent, which among other socially progressive investments (video telephony, "experience communication," an alternative car-hire system), helped launch Ben & Jerry's into new markets in Europe. But he never gave up on the ecological balance sheet.

Here's how it works: When a company inflicts damage that we know how to clean up — carbon-dioxide emissions that worsen global warming, for example — the costs of that cleanup can be calculated. Otherwise, you figure the price for reproducing the same energy from sustainable sources.

Of course, there's already a thriving market for emissions credits, and a number of big companies, such as BP and McDonald's, publish "audits" assessing their environmental and social performance. But Wintzen's notion goes much further: He thinks that nations should require companies to publish environmental accounts — and then charge them a "value-extracted tax" (VET) for their impact on the earth. In principle, anyway, such a tax would encourage companies to invest in solutions that minimize destructive impact.

Wintzen has talked up the idea to corporate CEOs, who have been "surprisingly negative," he says. Surprisingly? CEOs hate any taxes. In any case, while Wintzen's is an "elegant solution," says Stuart L. Hart, who holds an endowed chair in Sustainable Global Enterprise at Cornell's Johnson School, the devil is in the details. Since there's no agreement on how to calculate the impact of activities such as raw-material acquisition or actual plant operations, "the definitional and empirical complexities of implementing such a system make it very difficult to imagine in practice."

A version of this article appeared in the August 2005 issue of Fast Company magazine.